The bureau’s investigation uncovered that starting in late 2009, CashCall and WS Funding entered into an arrangement with Western Sky Financial, a South Dakota-based online lender. The CFPB said WSF claimed that state laws did not apply to its business operations since it was based on an Indian reservation and owned by a member of the Cheyenne River Sioux Tribe.

However, the CFPB found that WSF’s connection to a tribe did not exempt it from complying with state laws when making loans online to consumers in various states.

The CFPB’s action marks the first time the bureau has sued an online loan servicer. The loans, acquired by WS Funding and serviced by CashCall, ranged from $850 to $10,000 with upfront fees, extensive repayment terms and yearly interest rates ranging from nearly 90% to 343%, the bureau said.

“The Bureau’s investigation showed that the high-cost loans violated either licensing requirements or interest-rate caps – or both – in at least eight states: Arizona, Arkansas, Colorado, Indiana, Massachusetts, New Hampshire, New York and North Carolina,” the release said.

Any obligation to pay such loans was rendered null and void in whole or in part by law in at least these eight states, the CFPB found. As a result, the bureau concluded that the defendants have been collecting money that consumers do not owe.

“Online lending is rapidly growing and deserves ample regulatory attention. The Consumer Financial Protection Bureau will take action against online lenders and servicers that engage in unfair, deceptive, or abusive practices,” said CFPB Director Richard Cordray.

Western Sky stopped making loans and started to cease operations in September of this year following several state investigations and court actions. CashCall and Delbert, its collection agency, continued to accept monthly payments from consumers’ bank accounts, the CFPB said.

The CFPB’s complaint calls for CashCall to refund consumers the funds collected when the loans were void. The complaint also seeks civil penalties and other damages.